Some in Washington Are Working on Deficit Reduction...but Others Aren't
In the wake of the release of the Fiscal Commission’s deficit reduction plan, it’s interesting to note the dichotomy between the focus on deficit reduction and the debate over the extension of the Bush-era tax cuts. Both of these issues are at the forefront of public debate right now. The Fiscal Commission should be applauded for its hard work in trying to draft a coherent and credible plan that will address our medium and long-term fiscal challenges. But during the same week as that final plan was unveiled, others in Washington have been working to make deficits worse by pushing for an extension of the 2001/2003 tax cuts.
Treasury Secretary Tim Geithner and OMB Director Jack Lew are negotiating with both Republican and Democratic Congressional leaders to break the partisan stalemate over the tax cuts. It is ironic that the roughly $4 trillion cost of extending the tax cuts is about the same as the amount of deficit reduction the fiscal plan seeks to achieve.
It is unfortunate that these two issues are being considered on entirely different tracks, even though they are closely intertwined. Any tax cut extension will significantly add to the debt. There are valid economic concerns over allowing taxes to rise during a fragile recovery, yet CBO has concluded that ANY extension of the tax cuts, if deficit-financed, will hurt the economy by the end of the decade because of the additional debt it would throw onto the already growing pile of IOUs.
It is also regrettable that the tax cut fight has not spawned a larger debate over much-needed reform of the tax code. Almost all members of the Fiscal Commission yesterday praised the focus on tax reform in the Commission proposal and noted the need for fundamental reform.
CRFB applauds the efforts of those on Capitol Hill working to responsibly address our fiscal and economic challenges down the road. We hope that those efforts won't be undermined by narrow-minded tax policy choices.